Long-run carbon emission implications of energy-intensive infrastructure investments with a retrofit option

Jon Strand, Sebastian Miller and Sauleh Siddiqui ()

Energy Economics, 2014, vol. 46, issue C, 308-317

Abstract: Investments in long-lived, fossil-fuel intensive infrastructure can have large effects on carbon emissions over a long future period. We simulate a 2-period model of infrastructure investment with subsequent retrofit to purge its carbon emissions, under uncertainty about climate and retrofit costs. The energy intensity chosen upon investment depends on current and expected future energy and environmental costs, and on future retrofit cost. Simulations of a simplified but realistic model indicate that energy consumption and carbon emissions can be highly excessive when future energy and climate costs are not considered at the time infrastructure investments are made, and charged at globally suboptimal rates when operated; often by more than 50% when energy costs are undervalued at this rate both ex ante and ex post. Good anticipated retrofit options reduce ex post energy costs, but lead to ex ante choice of more energy-intensive infrastructure, which could more than fully offset the energy-reducing effect of the retrofit. These results are of particular importance for emerging economies with large current and anticipated energy-related investments, where long-term climate policy goals may be seriously jeopardized by policy makers facing too low energy prices, now and in the future.

Keywords: Infrastructure investment; Long-run energy consumption; Retrofits; Long-term climate policy (search for similar items in EconPapers)
JEL-codes: H41 Q41 Q42 Q54 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0140988314002448
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:46:y:2014:i:c:p:308-317

DOI: 10.1016/j.eneco.2014.10.002

Access Statistics for this article

Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant

More articles in Energy Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().